HMRC’s use of hindsight in share valuations

KEY POINTS

• Application of ‘fair value’.
• Influential factors used to estimate market value.
• Hindsight and duty of confidentiality to shareholders.
• Effect of a future exit route on value of shares.

The statutory concept of ‘market value’ has broad application in taxation. ‘Fair value’ arises in accounting and as a discrete concept in connection with shares it is met in companies’ articles of association and in shareholders’ agreements. There are also non-technical derived adjectives such as ‘full’ ‘intrinsic’ ‘real’ and ‘true’ that can be applied to the word ‘value’.

‘Value’ does not have a decisive definition but in the context of statutory ‘market value’ it is related to what an asset would fetch upon a sale in the open market. This much is well-trodden ground that is widely understood.

If there are...